Asian specialty losses to be reflected in renewals: Swiss Re

November 7 2024 by

Engineering and construction, cyber, and credit and surety are key growth drivers for specialty lines of business in Asia Pacific, according to Anne Lohbeck, Swiss Re’s chief underwriting officer specialty.

“Asia already is an important part of our specialty book,” said Lohbeck.

Engineering and construction is a class, where she expects the most growth on a global scale coming from APAC due to the large need for infrastructure investments.

Globally, construction output is expected to grow by over US$4 trillion over the next 15 years, with China, the US and India contributing just over half of that growth.

“So that gives you a perspective on how important the APAC region is for engineering and construction growth in the next few years,” she said.

“There are general infrastructure developments. And then there are also specific infrastructure developments in energy provisioning and green energy transition that will largely fall into the engineering and construction markets, some of that also falling into marine depending on how the risks are suited.”

An emerging line of business in a number of geographies across APAC is inherent defect insurance, which is a sub-segment of engineering and construction becoming compulsory, according to Lohbeck.

Inherent defect insurance guarantees against defects in high-rise buildings and larger developments, typically for 10 years. “So it is long-tail coverage,” Lohbeck noted.

“We view it as a really important contribution to societal resilience. It has become mandatory in a number of cities in China. There are discussions in a number of jurisdictions and we have rolled out products in the number of markets,” she added.

“There is already significant volumes in the region. Japan has had an IDI Insurance pool since the late 2000s, there are 40 cities in China that are about to adopt it. Mauritius has IDI coverage now. So there’s quite a bit happening along that front and quite a bit of additional countries that have it,” according to Lohbeck.

Cyber insurance is another business seeing strong growth in a number of regions.

“The two most developed markets from our perspective are Japan and Australia. But we also see demand in other markets. We see a number of clients who want to start embedding small cyber offerings into their suits. So that is something where we are expecting quite a bit of growth from.

“It’s going to be big. So clearly an important driver for Asia,” she noted.

“The third one is around credit and surety, which is as a facilitator of global trade as a stabiliser with trade credit products with political risk, which also helps in mitigating against geopolitical instability. So that’s also an area where we’re seeing quite some demand and also specifically from Asia,” Lohbeck said.

Surety market is very much driven by regulation, and trade credit, generally, is a market that Swiss Re sees decent growth rates in the region.

“We also see continued protection gaps, namely in nat cats, but they also do exist with regards to the other perils and the other drivers of the specialty markets. For Asia, I think there is scope to grow by closing the protection gaps,” she added.

Renewals
While Swiss Re sees continuation of the status quo in the upcoming renewals, there have been notable losses in Asia Pacific that will be reflected in the pricing.

“We’ve had quite a few claims here in Asia. The Jinko Solar plant fire is an over US$200 million claim. This was one of the largest solar panel production plants in Asia and we’ve had a fire there. It’s a relevant one for the industry.

“We had Typhoon Yagi, where we saw significant damages to solar power plants as well as to offshore and onshore wind farms. We had Baltimore Bridge incident for which the cover for the vessel was placed in the Asian market,” Lohbeck said.

Those are all quite meaningful large losses that will impact the Asian insurance and reinsurance markets and “they find their way also through to pricing”, she added.

“An interesting observation this year is if you look at large losses, generally, there is a good share in Asia as well so that there needs to be some reflection of that,” she added.

The nat cat losses around the region are also expected to be reflected in the renewals, Lohbeck said, noting that “some effects from the property space also impacting specialties because of shared capacity as clients and brokers and reinsurers place that jointly”.

Specialty lines of business that have a nat cat component such as engineering and marine energy are ultimately dipping into the same capacity pools as property cat so it will be interesting to see just how that pans out. That’s a market question more than anything else, she said.

“There are general infrastructure developments. And then there are also specific infrastructure developments in energy provisioning and green energy transition that will largely fall into the engineering and construction markets, some of that also falling into marine depending on how the risks are suited.” Anne Lohbeck, Swiss Re

As for developments within the specialty lines of business around wordings and conditions, she said: “We’ve had developments now for a number of years, such as energy transition geopolitical instability, tensions, sanctions, ESG. None of those are new.”

“We’ve seen those unfolding over a number of years now and there are some evolving things that we need to continue catering to, also in insurance and reinsurance relationships, but I don’t think we need to invent anything fundamentally new.

“I really expect the continuation along the lines of where we have been and no big surprises that are moving the market,” Lohbeck added.

Global trends
There are “two-and-a-half drivers for specialty reinsurance globally”, Lohbeck said.

“One big one has been and continues to be geopolitical instability. We have the US elections, it would be interesting to see what happens on that front and the second one is economic uncertainty, globally.

“Geopolitical uncertainty, sanctions, war coverage, then economic uncertainty, the necessity to facilitate global trade, to support anything that touches the credit and surety markets,” she added.

“The third, or the half factor, has been natural catastrophes,” Lohbeck continued.

“We sometimes forget that the specialty space, namely the marine and energy, as well as the engineering and construction markets, is also impacted by nat cats and sometimes by secondary perils or by loss scenarios that we were less aware of such as sand storms that we’ve had in the Middle East that scratched the surfaces of solar panel, or such as flooding in unexpected places that impact energy infrastructure.”

These are “three sources of volatility and uncertainty but also three drivers that I think currently are very prominent in the public debate and that have made people more risk aware”.

“So we have seen that also driving insurance and reinsurance demand,” she explained.

Emerging risks
“I would say with cyber very clearly we’ve seen a world that is becoming much more interlinked with data, information in the cloud with artificial intelligence as these technologies emerging, the threat levels and the potential scenarios of risks are evolving and getting larger,” Lohbeck noted.

She noted that protection in the cyberspace has not been keeping up with technological development at an equal pace.

“I think it’s fair to say that currently for cyber specifically, we do see the market growing. But we also see the protection gap growing and it will be interesting once those two drivers get at the same pace.

“At some point in time, we as an industry can raise awareness to start catching up with that protection gap that is something very real and that is projected to become as relevant, if not more relevant than protection against natural disasters, at some point in the future,” she added.

Political violence is another emerging risk that needs to be monitored.

“With the Ukraine conflict and now with the events in the Middle East, I think we’ve seen some heightened sensitivity around that product. And the way the market has reacted is to first and foremost increase transparency on both exposures. I think that for the entire market, it is a really important element,” she said.

Partner Content
Join the mailing list Designed to help you stay ahead, our daily newsletter provides a round-up of the latest news and insights, delivered straight to your inbox.
Print Edition
Subscribe to receive our quarterly print magazine.